Managing contracts in China

02.09.2019 IP Australia

If you’re doing business in China, you will at some point need a contract. A well-drafted contract that sets out the details of your agreement can reduce the risk around a business transaction.

Unfortunately, Australians often use poorly drafted contracts that are not well suited to protecting their interests in China. Below we list key tips for your China-related contracts.

Due diligence

It is important to conduct due diligence on the other party early in any business transaction. Due diligence helps you determine if this is a legitimate company, and evaluate the risks of your business transaction. Starting due diligence early can help avoid wasting time and money.

Reviewing the Chinese company’s business licence is necessary. This business licence lists the company’s key information including business registration number, official company name, registered address, business scope, and the company’s legal representative.

A Chinese company is only permitted to conduct business within its registered business scope. It’s important to check that their business scope covers the activities within your business agreement, and whether they hold relevant sector-specific permits or licences.

Much of the information relevant for due diligence is only available in Chinese and can be difficult to access outside of China. A professional service provider can help you perform due diligence on Chinese companies.

Contract language

A bilingual contract can help ensure all parties clearly understand the agreement they are entering into. If a contract is bilingual, it should specify which language will take precedence in the event of a dispute. It’s a good idea to have your contract reviewed by a bilingual lawyer to ensure both texts are identical.

Dispute resolution

In the contract, specify how and where any disputes will be resolved .

With few exceptions, China does not enforce foreign court judgements. If a contract provides dispute resolution exclusively in an Australian court, that Australian court judgement cannot be enforced in mainland China.

If you want your contract to be enforceable in China, it will generally need to either provide for dispute resolution before a Chinese court, or by arbitration (Chinese courts do enforce foreign arbitration awards).

A lawyer can advise you on suitable dispute resolution provisions for your China-related contracts.

Executing contracts

The individual signing on behalf of the Chinese company should be the listed legal representative, or another person who is authorised to act on behalf of the company. In addition, the Chinese company should stamp the contract with their official company seal.

The contract should identify the Chinese party by using their official company name (in Chinese), registered address, and their 18-digit business registration number. This information, and the company’s legal representative, are listed on the company’s business licence.

Legal advice

There are many differences between the Chinese and Australian legal systems, and a contract that is suitable for Australia may not work well in China.
It’s therefore important seek advice from experienced Chinese legal advisors on all contracts for China. Your Australian legal counsel can work with Chinese lawyers, or you can get advice directly from a Chinese or international law firm.

Watch IP Australia’s webinar on contracts in China.

For more information on protecting your intellectual property in China, visit IP Australia’s China page.
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